\n<\/p>\n
Codie Sanchez<\/strong><\/a> doesn\u2019t believe in passive income but still makes millions of dollars a year with businesses that don\u2019t require her input<\/strong>. To her, building businesses isn\u2019t the \u201cset it and forget it\u201d dream that most investors think it will be, but it sure beats having a job. Codie has built her wealth by buying <\/strong>\u201cboring\u201d businesses<\/strong><\/a> that most people overlook. Car washes, laundromats, and self-storage are some of her portfolio favorites, and they could make you a killing too.<\/p>\n So, what business should you buy?<\/strong> In today\u2019s episode, Codie goes over the exact type of businesses real estate investors should be looking into<\/strong>, what to do before you even begin your search, and how to hire someone else to run the business <\/strong>so you don\u2019t have to. But you might think, \u201cI have no experience doing ANYTHING like this.\u201d Thankfully, you don\u2019t need to be a former CEO or investing expert <\/strong>to buy profitable boring businesses, but you need something almost everyone has.<\/p>\n From there, Codie dives deep into the secret of \u201ctalent management\u201d and how to keep great employees around <\/strong>while making them rich, plus the one partnership tip that could stop you from getting scammed<\/strong> and losing hundreds of thousands of dollars (this happened to Codie). Want to buy a business and <\/strong>leave your nine-to-five<\/strong><\/a> behind<\/strong>? Tune in!<\/p>\n David: Codie: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Codie: David: Rob: David: Rob: David: Rob: David: Codie: Rob: Codie: Rob: Codie: Rob: David: Rob: Codie: Rob: Codie: Rob: Codie: Rob: Codie: Rob: Codie: Rob: Codie: Rob: David: Codie: David: Rob: David: Codie: Rob: Codie: David: Rob: Codie: Rob: David: Rob: David: Codie: David: Codie: David: Codie: David: Codie: Rob: Codie: David: Codie: Rob: Codie: Rob: Codie: Rob: Codie: Rob: Codie: Rob: Codie: Rob: Codie: Rob: Codie: David: Codie: David: Codie: David: Rob: David: Rob: David: Codie: David: Codie: David: Rob: Codie: Rob: David: Rob: Codie: David: Codie: David: Codie: David: Codie: David: Codie: David: Codie: David: Codie: David: Codie: Rob: David: Codie: Rob: David: Rob: David: Codie: David: Codie: David: Codie: David: Codie: David: Rob: Codie: Rob: David: Rob: David: Codie: David: Codie: David: Codie: David: Codie: Rob: Codie: David: Codie: David: Codie: Rob: Codie: Rob: Codie: Rob: Codie: Rob: Codie: David: Codie: David: Codie: David: Rob: Codie: Rob: David: Codie: David: Rob: Codie: Rob: Codie: David: Rob: David: Codie: Rob: David: Codie: Rob: David: Rob: Codie: David: Codie: David: Rob: Codie: David: Codie: Rob: Codie: Rob: Codie: Rob: Codie: Rob: David: Codie: David: Codie: David: Codie: David: Codie: Rob: Codie: Rob: Codie: David: Codie: David: Codie: Rob: Codie: David: Codie: Rob: Codie: Rob: Codie: Rob: Codie: Rob: David: Rob: David: Codie: David: Rob: Codie: David: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Recorded at Spotify Studios LA.<\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is the BiggerPockets Podcast show, 802.<\/p>\n
I hate the line passive income. I know that\u2019s a real estatism. When people say they want passive income, what they\u2019re really saying is, I don\u2019t want to be tied to a business. I don\u2019t want somebody else to own my time. I don\u2019t want to have to work and stay away from my family. But there is no such thing as purely passive income. I think it is a complete and utter fallacy. The only way that you can get passive income is by doing upfront active work.<\/p>\n
What\u2019s going on everyone? It\u2019s David Greene, your host of the BiggerPockets Real Estate Podcast? The biggest, the best, the baddest real estate podcast in the planet, here today with Rob Abasolo from one of his former hometowns Los Angeles.<\/p>\n
That\u2019s right.<\/p>\n
We\u2019re here at the Spotify Studios recording in person.<\/p>\n
Live. We\u2019re live from the Spotify studio.<\/p>\n
You and I are live right now.<\/p>\n
That\u2019s right. Although we\u2019re pre-recorded-<\/p>\n
It\u2019s not going to be live. Coming to you pre-recorded from Los Angeles at the Spotify Studios where Rob and I are going to be interviewing Codie Sanchez. We\u2019ve had Codie on previously on the BiggerPockets Podcast, episode 614. Since then, Codie\u2019s career has really taken off as she teaches other people how to buy businesses and grow businesses as well as does so herself. Rob, what were some things that investors should keep an eye out for that will really help them on their journey?<\/p>\n
Honestly, I think the thing that she really hammered in this podcast was the importance of really vetting the people that you\u2019re hiring, but specifically the operators or the partners that you\u2019re bringing on any business because you just don\u2019t want to get into a bad deal with a bad partner, not be able to escape it. So she talks about some of the systems and some of the things that she does to cross-reference and vet some of the people that walk into her business so that they can run it successfully and help her grow them.<\/p>\n
That is actually great advice for people to look out for. What was your favorite part of today\u2019s show?<\/p>\n
It is always one of those things. Codie is such a powerhouse in this place. She\u2019s a pioneer. She made laundromats and car washes in businesses that seemed boring, very sexy. They\u2019re very cool, because it just shows you that the stability of them. They\u2019re recession proof, and I\u2019ve always really appreciated her ability to articulate that thing. And honestly, she articulates it so well that when it\u2019s our turn to talk, it\u2019s like, that\u2019s right. We must add something that\u2019s also sounds good, but it\u2019s hard to do that when you\u2019re next to Codie.<\/p>\n
Yeah. This was a great interview. Codie did a great job. She made things very easy. I thought she gave a ton of value, both philosophically and practically. She tells some really good stories. She gives some good examples from her own business, and she actually has a part where she talks about being careful who you get your information from.<\/p>\n
Exactly, yeah.<\/p>\n
There\u2019s a lot of influencers out there that paint a picture that is not realistic when it comes to actually running businesses, buying businesses, and owning rental properties.<\/p>\n
And we also talked about the scam of passive income and why that\u2019s not really, that shouldn\u2019t be the goal for most business owners and real estate investors.<\/p>\n
So make sure you listen all the way to the end because this interview is fire the entire time. Pretty much guaranteed to make you money in your career. Before we get into the interview, today\u2019s quick tip is very similar to what Rob just said. When you\u2019re looking for partners, look at what they\u2019ve done in the past. Don\u2019t assume that people are going to do something different in the future than what they did in the past. People tend to be themselves. So if they don\u2019t have success or experience doing the thing you need them to do, probably isn\u2019t the right partner. All right.
Let\u2019s bring in Codie. Codie Sanchez, welcome back to the BiggerPockets Podcast. You were featured previously on episode 614 as well as the BiggerPockets Money Podcast 416 where you were talking about boring businesses that will make you rich. Today we\u2019re going to be following up on those boring businesses and talk about which businesses are the best fit for real estate investors and how to make those businesses as passive as possible. Thanks for being here.<\/p>\n
Thanks for having me.<\/p>\n
You and Rob have a little bit of a friendship thing going on. Little bit of a-<\/p>\n
We\u2019re buds.<\/p>\n
I was going to say bromance, but you\u2019re not a bro. So is there a name for, how do you-<\/p>\n
Brosismance.<\/p>\n
Brosismance. Okay. Yeah.<\/p>\n
I coined that today.<\/p>\n
So what does the world not know about Rob that they need to know that you know.<\/p>\n
Gosh.<\/p>\n
Please don\u2019t tell them.<\/p>\n
I actually think you\u2019re an authentic human in real life. You\u2019re the same person.<\/p>\n
Thank you.<\/p>\n
Off the screen and on.<\/p>\n
I try my best. I really do.<\/p>\n
You don\u2019t have to try to be authentic. You\u2019re making your own thing sound really bad.<\/p>\n
Yeah. I try to be real.<\/p>\n
No. I think you\u2019re the exact same human, which actually is quite rare.<\/p>\n
Really? You think so.<\/p>\n
Yeah. You meet a lot of people and you turn it on. I mean, some of the biggest podcasts I\u2019ve been on. They\u2019re incredible humans. They\u2019re really nice either way, but there\u2019s a switch that\u2019s-<\/p>\n
That\u2019s true.<\/p>\n
\u2026 for sure.<\/p>\n
Yeah. You walked in, same Codie as always, but there is a little bit for some of the people that come in sometimes, there\u2019s a little bit of a focus they\u2019re getting in, not in character, but they\u2019re getting in the zone and then it\u2019s like, all right, we\u2019re starting and it\u2019s like\u2026<\/p>\n
Yeah.<\/p>\n
So it does happen for sure.<\/p>\n
Well, actually, and it\u2019s not always that bad. Did you guys ever read that book Winning by Tim Grover?<\/p>\n
Tim Grover?<\/p>\n
Yeah.<\/p>\n
Did I read it? I own it.<\/p>\n
There\u2019s a running joke that Rob doesn\u2019t read books. He just picks the ones with the best looking covers to put in the pictures of his short-<\/p>\n
Actually that makes a lot of sense. You put them on your Airbnb stage [inaudible 00:04:58] conference.<\/p>\n
Yeah. That\u2019s exactly what it is.<\/p>\n
Just going to keep using that joke today as many times.<\/p>\n
It\u2019s working.<\/p>\n
But it\u2019s really good if you actually haven\u2019t listened to it. It\u2019s a great listen too. But he talks about how Kobe got into the Black Mamba mentality, which was his. And I resonate with that. I think if you actually want to be exceptional at something, it\u2019s hard to be normal just like everybody else. Have the same personality you have all the time. In fact, you do have to switch a flip.
You guys know if you\u2019re just nice guy Rob all the time when you\u2019re doing real estate deals and something\u2019s going wrong and somebody\u2019s defrauding you and something bad\u2019s happening, it\u2019s probably not going to work. They don\u2019t want to hear about chipotle burritos.<\/p>\n
That\u2019s true.<\/p>\n
So you have to switch this flip to, all right, this is where I separate from the rest of the pack.<\/p>\n
Maybe not the black mamba, you could be the brown water moccasin.<\/p>\n
Yeah, I\u2019ll take that. Yeah. When I\u2019m at TSA, I have to turn it off because I just want to chat with them and then they\u2019re like, \u201cGet me out of here.\u201d And I\u2019m like, \u201cSorry, sir, let me get on through.\u201d<\/p>\n
Kids are going to look forward to that.<\/p>\n
You do have a chat with somebody. Go to Trader Joe\u2019s, the cashier\u2019s very friendly. Some of my best friends.<\/p>\n
Is that how you got through some rough times?<\/p>\n
That\u2019s how I did man. Joe\u2019s the-<\/p>\n
Can\u2019t afford a therapist. You just found a Trader Joe\u2019s and you pinned the employee down, couldn\u2019t get away.<\/p>\n
Poor thing. They don\u2019t pay them enough.<\/p>\n
So Codie, for people who haven\u2019t heard the episodes that we\u2019ve already done with you, or they don\u2019t know about you, perhaps they\u2019ve been living under a rock, don\u2019t have the internet, still use one of those phones that\u2026 When they\u2019re talking, can you share a little bit about your experience as an investor and a business owner?<\/p>\n
Sure. Well, I did the Wall Street thing for a long time. So I was an investor at Vanguard, Goldman Sachs, State Street, a bunch of the big investment firms out there. And then I started investing in companies on the side, little businesses because I realized as I was investing alongside these big huge funds and pensions, the deals weren\u2019t actually that different. Although we were doing $100 million dollar or billion dollar deals, it wasn\u2019t that different really from me doing a five, 10, $100,000 dollars transaction on the side.<\/p>\n
Sorry to cut you off, when you say we weren\u2019t that different, are you saying the fundamentals of how it\u2019s analyzed a profit and loss statement and income stream org chart and you\u2019re looking at it all?<\/p>\n
Exactly. It\u2019s not that different between buying a condo and buying a mansion, or buying a condo. And even, you could probably say buying a multifamily.<\/p>\n
Just signing the same forms, yes.<\/p>\n
Right. Yeah. There\u2019s a lot of rhymes.<\/p>\n
Sign the same paperwork that you don\u2019t read, all that stuff.<\/p>\n
Yeah. Well, our world\u2019s not a good idea. Real estate more normal. So I did that for a number of years and then finally, I built up enough income where I was making more doing that than I was in my corporate job. So I left and became a partner at a private equity firm. And there I quickly realized too, I didn\u2019t like that model. I really just wanted to own my own companies. I wanted to own them forever. I didn\u2019t want to have to build them up, strip out some of the financial costs and then sell them.<\/p>\n
Clip them. Yeah.<\/p>\n
So I was like, what if we just did the Warren Buffet model? We have a HoldCo, we own these things forever. They cashflow for us. We build our communities. And I started doing that. And then I got bored in COVID during 2020, and I started talking about it on the internet and didn\u2019t realize that people thought laundromats, car washes, all that jazz would be all that interesting.<\/p>\n
Yeah. So you were working at Goldman Sachs doing all this stuff. Did you go to school for this for that side of things like finance? Because I know that in a previous life you were also like a journalist too, right?<\/p>\n
Yeah. I was a human trafficking and drug smuggling journalist when I was still in college. I graduated a year early from the illustrious Harvard of the west, really Arizona State, and then I basically, I started climbing up in finance and I didn\u2019t go to school for that. I did a couple majors. It was like business journalism, public relations for undergrad.<\/p>\n
Just a triple major.<\/p>\n
Arizona State is way more known for keg stands and partying than grad degrees. So I did that and then I realized that I didn\u2019t know enough about finance, even though I was working in it, I wanted a grad degree because I felt that\u2019s how you actually learned back then. So I ended up going to Georgetown and got an MBA from Georgetown, and that\u2019s when I built up a business in Latin America.
But to start, I think a journalist is an incredible background to have for finance because all you do is learn how to ask really good questions. And you guys know when you go and look at a house in real estate and you do an inspection, you can just follow all the documents. But if you ask the right questions to a seller, you can probably get a better price or better terms when you actually understand what they want. If you ask the right questions during inspection, you can actually make sure you save yourself a bunch of headache. And if you ask the right questions to investors, you can figure out how you could get them to give you their money. So that journalism component weaved its way through finance, but I was never an expert in Excel.<\/p>\n
So fundamental of business, what questions need to be asked? I think that\u2019s how you really start laying\u2026 When I\u2019m building out any of the business that I\u2019m doing, all we\u2019re doing is just asking questions and writing them down because that\u2019s how you find out what you don\u2019t actually know.<\/p>\n
It\u2019s true.<\/p>\n
Before we get into the content, for people listening who are like, I got into real estate to make income passively, but I don\u2019t want to start a business, what would you say to them?<\/p>\n
I hate that line. I hate the line passive income. I know that\u2019s a real estatism. I always say you don\u2019t want passive income. You want empire. You don\u2019t want just money. You don\u2019t want to get rich, you want to be free. So when people say they want passive income, what they\u2019re really saying is, I don\u2019t want to be tied to a business. I don\u2019t want somebody else to own my time. I don\u2019t want to have to work and stay away from my family.
But there is no such thing as purely passive income. I think it is a complete and utter fallacy. The only way that you can get passive income is by doing upfront active work. And I think we should all be honest about that.<\/p>\n
Yeah, totally.<\/p>\n
Because how do we do passive deals? We do passive income deals after we\u2019ve put in 10 years or thousands of hours to understand what a good deal looks like and what a bad deal looks like, and actually do the due diligence on closing it.
So when I was younger, I too was like, I would love passive income. That\u2019s the focus. But one, I think it sells you short. I\u2019ve taken sabbaticals and four week and six week and 12 week vacations, and at the end of it, you can only read so many books on the beach sipping a Mai Tai. So I think we actually want to be in the game. We want to be in the arena. You just don\u2019t want to do it with people you don\u2019t like, doing things you don\u2019t want to do, working on stuff that doesn\u2019t matter in a place that you don\u2019t like a cubicle.<\/p>\n
So are you saying even if you invest right now in a syndication that is completely passive, are you saying it\u2019s not truly passive because of the years of work that it took to accumulate the money to do so?<\/p>\n
I think there\u2019s two sides to the coin. One, if you\u2019re doing it that way, you have to have money to make money, right?<\/p>\n
Yeah.<\/p>\n
So if you\u2019re going to invest in a syndicate, how did you get it? They don\u2019t give it to you, so for sure hundreds of hours or thousands of hours to get the cash. But side two is, there\u2019s a lot of syndicates out there. Which one\u2019s a good one? Which one\u2019s a bad one? We\u2019re not born with that knowledge. You have to know the difference between the two. And the only way to get that is by doing the upfront work.
So I think what people actually want is they want, what is a game where if I spend a decent amount of time, becoming a subject matter expert on something for the rest of my life, I can lean into that and I can have horizontal income, AK money that\u2019s not tied to my time like David Osborne talks about, but it\u2019s not necessarily passive. I have to file a K-1 every year. I have to oversee the portfolio that I have of a bunch of different syndicates.
But these days I get annoyed not in this crew actually in the trenches doing the thing, but I get annoyed when people on the internet say, \u201cYou can do this passively on the beach, all the time-\u201d<\/p>\n
So let\u2019s get into that, why do you think that\u2019s such a popular perspective on especially real estate, but business in general? Where does it come from?<\/p>\n
I mean, if we look at the numbers, sadly, most people in modern society are unhappy, overweight, single, having less sex than they\u2019ve ever had before, getting married at later ages than they\u2019ve ever had before, having fewer kids, not satisfied with their work. There\u2019s this age of malaise, despite the fact that at the same time we have lower poverty than ever before. We have longer health spans than ever before.
So I think people are reacting to this overall malaise in society and they\u2019re like, I want to way out and I want to way out today. So they gravitate to this shiny object over here. And I also think with the internet, people who are really charismatic can rise to the top with information. And in the past that wasn\u2019t the case. You didn\u2019t go to a teacher just because he was the best speaker. You went to a teacher because they were really good at a subject matter. And these days it\u2019s really hard to vet who\u2019s real and who\u2019s not.<\/p>\n
That\u2019s 1,000% true. So is what you\u2019re saying that because we tend to get our information from the most charismatic person, not the wisest one, we are influenceable and they can say, \u201cGo for passive income because that\u2019s so appealing.\u201d<\/p>\n
I think that\u2019s right.<\/p>\n
You said something else that triggered my thought when I was thinking about passive income, because I got sold on that dream at some point. Lots of us have been sold on the dream. Then you\u2019re in it long enough and you think you\u2019re doing something wrong and you realize nothing works passively. You work very hard, you build something up, then you don\u2019t pay attention to it. It falls apart. Well, hire someone else, put them in charge, you\u2019re not paying attention to them, it\u2019s going to fall apart.
That also happens with all the other things you said. In your relationship, you can\u2019t just work really hard, find a person to marry, you marry I\u2019m like, no, I\u2019m done. I don\u2019t have to do anything. What happens, is you end up single again. You end up having less sex. What happens if you get in really good shape and you say, \u201cI don\u2019t have passive fitness. I don\u2019t want to go to the gym anymore.\u201d It falls apart.<\/p>\n
That\u2019s true. Yeah.<\/p>\n
You mentioned all of these things that people are struggling with, and I wonder if the core thread is this belief that we want it to be passive and we\u2019re resisting the fact that the rhythm of nature, the way the world works is, you may not have to work as hard to stay in shape as you did to get in shape, but you still need to do some work-<\/p>\n
Maintenance.<\/p>\n
\u2026 and it\u2019s like, yeah, our hatred of that, I want to believe that I can just get money that\u2019s free because I already did the work. I can just have a spouse that\u2019s head over heels in love with me without continuing to put in the work. All these different areas of, that\u2019s not what\u2019s causing these problems.<\/p>\n
I think it\u2019s beautifully said. I mean, I go back to lots physics, which is that everything degrades over time, continuously.<\/p>\n
It\u2019s like the second law of thermo-<\/p>\n
Yeah. Thermodynamics.<\/p>\n
You learned that in Arizona State when you were doing kegs dance. That\u2019s impressive.<\/p>\n
You guys read Newton\u2019s book too.<\/p>\n
Yeah, exactly.<\/p>\n
Yeah. That\u2019s one of my favorite sections.<\/p>\n
I saw it in Robs Airbnb. I was at Rob\u2019s Airbnb. I needed to grab something to go to the bathroom and the book was sitting right there.<\/p>\n
I downloaded the Blinkist.<\/p>\n
Well, I think that\u2019s why these days, what\u2019s interesting is some of my favorite thinkers are former, like Lex Fridman, right?<\/p>\n
Yeah.<\/p>\n
He\u2019s a scientist. He\u2019s really good at taking the things, like you are. I say something and I give a wide frame and you go, \u201cIs what you\u2019re saying this, this narrower frame?\u201d And then you frame it even further, and if you can name the thing, it\u2019s even better. So then you go, actually what you\u2019re saying is the second law of thermodynamics, which is basically that\u2019s talking about heat in that specific instance, but basically talking about how something is going to immediately cool-<\/p>\n
Or time is going to fall apart.<\/p>\n
Exactly. And how the universe trends towards chaos.<\/p>\n
And it\u2019s work to keep it from going that way.<\/p>\n
Exactly. I mean it\u2019s the same thing of another rule, but thinking about the law of the commons, right?<\/p>\n
Yes.<\/p>\n
Which I think is really relevant to real estate. If nobody owns something and everybody owns something and as opposed to somebody, one person owns something, what\u2019s the difference between those three variables? Well, when everybody owns something, then actually nobody owns it because there\u2019s not individual lines of responsibility and incentive alignment. And because of that, we have things that sound great, like-<\/p>\n
Socialism.<\/p>\n
Socialism, public housing, communism. And in actuality they\u2019re not great because individual ownership is really important, that\u2019s-<\/p>\n
No one takes care of the town bicycle.<\/p>\n
Exactly. Or these days, think about the scooters. If you had that $3,000 scooter and it was yours, it wouldn\u2019t be beat up and thrown in the middle of the street.<\/p>\n
Correct.<\/p>\n
So that individual responsibility is really important. And I do think you\u2019re right, you work at it a little bit every day. But what I wish people would realize instead is, instead of just passive income, what if that it is actually possible to be healthy, fit, rich, happy? Those are actually possible. And they really just take consistent goodness, not even consistent greatness. And that\u2019s the message we should share, but a lot less sexy than five ways to make passive income in 30 days to replace your 9:00 to 5:00 salary, which sounds a lot better.<\/p>\n
Yeah, that\u2019s true.<\/p>\n
I think it\u2019s important because the person listening to this is also listening to the charismatic TikToker. They\u2019re also listening to the really good-looking influencer on Instagram that they like to follow. And they\u2019re hearing a different message. They hear me say, \u201cYou got to work really hard to do the thing.\u201d They hear you say, \u201cYou got to be really smart and really good with your time.\u201d But then they hear someone else say, \u201cI don\u2019t do anything. I just make these videos and I raise money and I give it to someone else and I make a bunch of money.\u201d Or they hear somebody else say, \u201cYou buy real estate, you never have to touch it again.\u201d They don\u2019t know who to believe.
That\u2019s why these laws to me are important because if you don\u2019t see anything else in the world work this way, don\u2019t think it\u2019s going to work that way here. When you see a pattern all throughout the universe that things tend to skew this direction, that\u2019s what you should expect within business and real estate and relationships and everything else.<\/p>\n
It\u2019s so true.<\/p>\n
Can already see the title now, passive income is a scam. That\u2019s going to be your thumbnail right there.<\/p>\n
That\u2019s your title?<\/p>\n
That my title, yeah. So I think it\u2019s pretty funny because I\u2019ll be in conversations with\u2026 I was actually talking to Pace one time and I took out my phone to answer an Airbnb message and he is like, \u201cYou still do that? \u201cAnd I was like, \u201cYeah.\u201d And he is like, \u201cWhy?\u201d And I was like, \u201cWell, keeps me sharp.\u201d And I think that actually when you get to the part where it\u2019s passive, it\u2019s a little harmful to your business acumen I think, because you forget.
I hired an assistant, a property manager to help run my properties. And for a bit there, it was great for a month whenever I really felt like I off boarded her and she was ready and doing it. But then after a month I was like, \u201cShoot, how do I do this again?\u201d So that\u2019s why I still get everything in my business because whether or not I have to respond, I just like knowing that I still got it.<\/p>\n
Your husband, Chris, was just talking to me about ju-jitsu. There is a very big difference between the instructor that still trains and teaches you, and the one that just owns the gym, runs it. Their ju-jitsu itself is passive. At one point they were good at it, they haven\u2019t done it anymore. They don\u2019t want to sweat and they just want to bark at everybody else. I think we\u2019ve all known what the coach is that isn\u2019t involved in the sport anymore, and it\u2019s a different experience than the one that remembers what it\u2019s like to be tired and remember what it\u2019s like to be frustrated. Their advice is tailored to what the person\u2019s going through.<\/p>\n
No, it\u2019s so true. I mean, my dad has this exceptional quote that I go back to a lot, which is, \u201cAt some point in your journey of being an entrepreneur, you know you\u2019ve made it when you\u2019re sitting home alone in the dark, in middle of the night, on your sofa, head in hands, wondering what to do next.\u201d And I think every entrepreneur has felt that at some point, that moment of, \u201cWe\u2019re getting sued. They just left. I don\u2019t know what to do in this business. We don\u2019t have enough cash.\u201d
And I think if people are listening, there are two things that are really valuable here, which is one, going back to the laws of physics, which are hard to break and could show much in the business realm. And two is, you know when you listen to those charismatic influencers, and it sounds too good to be true. You know it. And deep in your gut, you can feel it.
And then when you hear me say that story about sitting in the dark with your head in your hands, you also feel it. Every entrepreneur feels that. They\u2019re like, yeah, I\u2019ve had that moment. So the woo woo part of me that lives in Austin likes to think that you go back to that intuition. Because I think there are also two types of people. Most people are deductive thinkers today, which means what happens around me, I react to, and I basically look at my situation and I deduce based on the things around me, what\u2019s happening.
And then there are intuitive thinkers which are like, well, what if we did this? And maybe we could manipulate that. And they\u2019re forward-looking and gut based. And I think most of us are trained to be deductive, X, Y, Z, and to go down a pattern. And what you want to also get back to in a way is that gut of yours. And I think that we give away a lot of our power because we forget that this actually often knows.<\/p>\n
Because that\u2019s telling you there\u2019s no way that could work. But then the lazy part of you is like, but I\u2019d really love to believe that it would.<\/p>\n
A 100%.<\/p>\n
But doesn\u2019t that happen in relationships too?<\/p>\n
Yeah.<\/p>\n
I don\u2019t think that this person really loves me for me, but they got a lot of money and it\u2019d be really nice to think that they did. It\u2019s easy to not listen to your gut, like what you\u2019re saying.<\/p>\n
Yeah. Well, and I think it gets stamped out of us. I think about my decade plus in finance, and it was all rationality. Let\u2019s look at the spreadsheet. Let\u2019s look at the numbers. But one of the deals that I did maybe two years ago that thankfully we pulled out of, I partnered with this guy, super smart guy. Went to Stanford, was also, was he a former rocket science, some science background. I can\u2019t remember what it might\u2019ve been. He might\u2019ve been in physics.
And I remember we were going to buy a dental company, and it was a pretty big deal and they were out of Chicago. So I said, \u201cHere are the numbers. Dig into them. Put together the actuals and the projections, and then let\u2019s go and look at them.\u201d So I looked at his model and he\u2019s like, \u201cWe really should do it. Here\u2019s what I see. This is super interesting. Really complex model.\u201d I was really busy and he was running point on the deal. So I\u2019m like, all right, we\u2019ll go there. We\u2019ll look at the due diligence in person. The model is interesting. I didn\u2019t dig too deep into the assumptions why the model came out X, Y, Z way.
We get there and the founder of the company who\u2019s trying to sell it to us is sitting across from us and we\u2019re digging into the numbers and I\u2019m like, \u201cI\u2019m sorry. I don\u2019t actually understand. Where are you getting this? Why doesn\u2019t this matchup with the tax returns with the P&Ls whatever,\u201d and we couldn\u2019t get there. And I\u2019m finally like, \u201cHow much money did you make on your tax return last year?\u201d And he is like, \u201cWell, we lost money last year.\u201d I\u2019m like, \u201cAnd the year before?\u201d He is like, \u201cLost money last year.\u201d
And I turned to the guy that I did the deal with. I\u2019m like, you can\u2019t project your way into a business deal. So all of the complexity that you added to this business is the reason you will fail. Instead of you being super rational, get back to that common sense. Talk to the guy. Okay, you lost money last year. You lost money the year before. Why aren\u2019t you going to lose money next year? That doesn\u2019t make that much sense here. Okay. Fuck the model, I don\u2019t even need it to see a deal. So the best deal makers I know can drop a deal on a napkin, get the other person to explain their complexity inside of a four by four. And if they can\u2019t, they walk. And if they can, you could do the complex.<\/p>\n
Yeah. That protects you from the whole, well, we\u2019re chasing market share and when we hit market share, we\u2019ll have escape velocity. And look at this huge number that you\u2026 You get bedazzled by the thought of what it could possibly be or, there was another example I was thinking of that just within business, the graphs and the charts and they\u2019re pulling on heartstrings and they\u2019re just tricking your brain into thinking this is going to go good and nevermind, how much money are you making? Why aren\u2019t more people buying it right now? Why do you think they\u2019re going to be buying it later? You won\u2019t be fooled. Which is also you see in relationships.
Well, yeah, when I get in a relationship, I\u2019ll finally deal with my alcoholism or I\u2019ll finally change something about myself that I\u2019m not doing right now, and then it usually doesn\u2019t happen. So I mean, this is great life advice, just how to not be fooled by shiny things and people that it\u2019s in their best interest to fool you. The person trying to raise capital to get you to invest in their business doesn\u2019t want to tell you that it\u2019s lost money for the last three years or else. [inaudible 00:24:16].<\/p>\n
That is always our first question. When me and my partner are underwriting any deal that someone brings us, we\u2019re all, someone is selling, they say, I\u2019m selling this. I wish I could be more optimistic. But we\u2019re always like, \u201cWhy are they selling this?\u201d<\/p>\n
Of course.<\/p>\n
There\u2019s always a reason. It doesn\u2019t mean that it\u2019s a bad one that they\u2019re losing money, but nine times out of 10, we work it out and they\u2019re like, they\u2019re losing money.<\/p>\n
Yeah. Nobody sells the car they have, or very rarely do they sell it when it\u2019s running great and there\u2019s no problems. And it\u2019s when you hear that weird noise, you\u2019re like, \u201cOh, no.\u201d<\/p>\n
You\u2019re like, \u201cI\u2019m just going to turn over here,\u201d and they\u2019re like, \u201cNo, don\u2019t do that.\u201d And then you\u2019re like, blinking. I\u2019m like, \u201cWhat was that?\u201d<\/p>\n
But when you\u2019re buying the car, you have the rose colored glasses, like, they probably just wanted to upgrade or they probably wanted a new family to have that car to raise their kids in. And then you get fooled, right?<\/p>\n
Yeah.<\/p>\n
So Codie, you had a interview with, it was a money interview, and there was this great moment where you said, \u201cThe reason why there\u2019s so much money to be made in buying small businesses is because there\u2019s not just one path. The path is, how creative can you be in your structuring? How creative can you be in structuring with your operator?\u201d
Let\u2019s talk about the specifics of how you structure with that operator. How do you structure a new business so that it\u2019s not another 9:00 to 5:00 that you are enslaved to, and you\u2019re serving it as opposed to it serving you?<\/p>\n
Well, there\u2019s lots of ways to do this. I think the best way to explain is probably case study specific. So when I\u2019m looking at buying a new business, I do, step one is always, I typically find the operator first. I\u2019m always starting with who\u2019s the guy or girl that\u2019s going to run this thing for me? And then I\u2019m vetting them like we talked about humans, background checks, references, past work.
And after I\u2019ve found that human, then I\u2019m looking for operator and me fit. So that\u2019s not just culturally how are we together? That\u2019s like, well, with the money that I have and the resources that I have and the skill sets this guy has and the resource he has, what\u2019s a good business for the two of us to do together? And then finally, I\u2019m probably thinking, what business can we buy that this person can operate that fits in that little middle of our Venn diagram?
And there\u2019s lots of ways to structure it. I think the most important part for you just learning is to realize that if you don\u2019t want to run the business, you have to find the human before you find the business. Most people go and try to find the business and hope that the human is in the business, or they think that they can go higher at the business. And you can do all of those things. It\u2019s just hard.
We\u2019ve all hired before. Hiring great people is really hard. Hiring somebody else to run your business and your dream not theirs is also really hard. So I start with a human and then I go to the business. Then you can get to structuring. Do we vest the equity right away? What are the cliffs? How much money do we pay them? What percentage of revenue or profit? Which you can again slice 57 ways from Sunday.<\/p>\n
And you think a lot of people skip the human element, they just look at the fundamentals and they assume that the human part will just work out?<\/p>\n
A 100%.<\/p>\n
So that\u2019s planning your wedding, wanting to know what all the details are going to be, and I want to live in this house, in this neighborhood, but you haven\u2019t actually found the partner that you can make that happen with.<\/p>\n
I think that\u2019s exactly right. And I really think for your first deal, you should probably be really closely involved in the business. You don\u2019t have to operate it, but I would be really closely involved in the business, and most people skip that.<\/p>\n
Yeah. What I wanted to ask from a time commitment standpoint, do you expect to give up a ton of time upfront versus when the business is up to speed? Are you coming in the backend? Are you in the trenches with your operator? Are you training your operator? Are you hoping that they\u2019re training you? What is that ideal scenario for you?<\/p>\n
There\u2019s three levels of operators in my opinion. There\u2019s a proven and known operator, which means they\u2019ve already done the thing that they\u2019re going to do this time and you know them. So they\u2019re a known commodity. And then there\u2019s unproven and unknown operators, which is basically they\u2019ve never done this specific thing before and you don\u2019t know them personally. And then you have the third, which is some reverse characteristic of that. Maybe you know them, but they\u2019re not proven vice versa.
So if you have a known proven operator, then typically I get out of their way. I\u2019m like, here\u2019s the cash. I like this reporting structure on Friday. I want you to funnel into all of our Excel spreadsheets. I want to have backend access to the website, and all the tech stack and the bank account so I can track and make sure that the money\u2019s flowing as it should be.
But otherwise, you run and then you come and tell me what you need. And that\u2019s usually a weekly call. Or now that I have somebody underneath me who runs our portfolios, that\u2019s like a monthly call, and I do a weekly call with a guy who runs all the portfolio companies. So that is your ideal state. So you know you think about it like, if you think about your business, so you know what you guys do right now, there are probably people in your realm, in your wheelhouse. You\u2019re like, God, that guy he\u2019s so good. He\u2019s a vendor. I pay him. And he does it every time on time, exceeds expectations. He\u2019s amazing.
Well, what I would typically do is once I find those people, I go to them and I\u2019m like, \u201cIt\u2019s interesting what you\u2019re doing now. I think we could scale it even further. Why don\u2019t you let me invest in that business? I won\u2019t buy out all of it, but I\u2019ll buy a big chunk of it, and let\u2019s really build this thing together. You\u2019ll use my capital and maybe some of my strategy, connection, network, et cetera to do it.\u201d So I like doing those deals to start if you can.<\/p>\n
So this is why you like buying businesses as opposed to just building them from the ground up?<\/p>\n
Yeah. Well, I like it for two reasons. One, I\u2019m not that creative. So I don\u2019t have the idea for the next Spotify, I don\u2019t. So I need the business to exist in the world already in some way, shape or form. And also I like businesses to be profitable. I mean, I run all my businesses at least 40% margin. So if I\u2019m going to start a business, I\u2019m going to have negative margin for a long time and I\u2019m going to have to fund it. And that\u2019s okay. I just don\u2019t like doing that. I do that 10 to 20% of the time, 80% of the time I want it profitable day one.<\/p>\n
Well, you\u2019ve got me thinking when a business first starts, just AI business, not just yours, there is a vetting process of failure. A lot of them never make it. So if this vendor is doing a good job in a sense they\u2019ve already completed like 90% of the path to having a successful business. They have the right operator in place. They have some idea of how to be profitable. They have good customer service, they have good systems, they don\u2019t have great. You\u2019re avoiding the whole, I don\u2019t know, so many puppies in a litter aren\u2019t going to make it or something like that. You\u2019re already getting the one that can handle the gasoline, you\u2019re going to pour on their fire.
Whereas if you took one of that was unproven, maybe there\u2019s some potential there and you dump all of the noss that you\u2019ve got and that thing, it\u2019s going to run right into the wall. You don\u2019t know where it\u2019s going to go. So that makes a ton of sense that you look for the person who\u2019s already more successful than 90% of their competition. And you say you\u2019ve probably hit a limit, or at least you may have linear growth of some kind. We can get you exponential with the resources you bring.<\/p>\n
That\u2019s exactly right.<\/p>\n
Yeah, and reliable, right?<\/p>\n
Yeah.<\/p>\n
I think reliable people are the hardest ones to find. So is it like you work with a vendor and if they\u2019re a good operator, you\u2019re just like that\u2019s the business that you become interested in because you\u2019ve already found the biggest puzzle piece to solve the whole problem there?<\/p>\n
At about any given time, I have five or six people that I have in the back of my mind and I\u2019m thinking about, I would like to launch an online business with this guy. He already has this. We could peel it off and do it here. I\u2019m going to talk to this guy because he runs a couple of our properties. He has a property management business. I should probably invest in part of that, an own and a half of that.
So they\u2019re cycling through my head and actually my husband and I, who runs our portfolio, Chris, we keep a list now of potential operators that we just like humans who are really good executors. And that\u2019s, again, this is a 4.0 level of the game. In the reverse scenario, if you\u2019re at the 1.0 level, you want to be on that list. You want to listen to all this and think, okay, I don\u2019t have the cash to invest. I don\u2019t have the expertise, but I probably got the time. So how do I become one of those people, people with a bunch of cash and a bunch of expertise, see as worthy of having an equity partner with. And that\u2019s what I wish I had done earlier. Instead, I just traded my time for money for a really long time.<\/p>\n
Yeah. Oftentimes, whenever people want to partner up, really in the real estate space, I always call it, I\u2019ll fund it, you run it or you\u2019re the brains, I\u2019m the bankroll. And obviously it doesn\u2019t mean that I\u2019m just investing in popping out, but for the most part, yeah, I do want that. I do want someone that can come in, give their time to it, and then I\u2019m there for the strategy side of it.
So you talked about having this list of operators. For those of us that are just trying to get one operator for whatever business, how does one go out and actually source an operator?<\/p>\n
Yeah. I think it\u2019s your immediate network. So I call it the COI effect, which is basically you\u2019re looking for centers of influence, but you are the center of influence. So if you think about it, right now for instance, I have Laura. Laura\u2019s my property manager, and she runs the crew that cleans my house in Austin, for instance. She\u2019s awesome. So we went out of town for four weeks and we had to have all these projects done on the house.
So I was like, I need the fences stained. I need the patio redone. I need you to buy a couple of these plants. I need you to do this. I need you to take my car into X, Y, and Z. And I just said, \u201cDo all that. Charge me what you will.\u201d And it was a micro project. And at the end of the four weeks, she had done all of it. She had done everything that I wanted her to do, and she saved me a grand by not taking it to one dealership and taking it to another one.
So when she did that, I basically got with her afterwards and was like, well, you take 50% of what you saved me, because when you save me money, you\u2019re going to make money. Love that. And then I basically said, \u201cYou\u2019re really competent in this, so what if we made you our office manager and our property manager?\u201d So I scale them up with little services. And then finally I see her being one who could manage. She could probably manage a couple of my Airbnbs and own a part of that company.
So you could think about it the most microscale. Everybody probably has a door guy at your building who\u2019s just incredible every single time, or the guy, the valet who parks your car every single time and he\u2019s amazing. And then if you\u2019re a little bit higher level, you probably have that person that works inside your company that you know won\u2019t be able to keep forever in that position. But if you funded them into something else, they would crush it.
So I think it\u2019s this secret of talent management and talent retention. We used to think about it like, how do I keep people in the company for a long time? And I think the 21st century way to do it is to think about how do I keep people in my ecosystem for a really long time? And if you can do that, then you can have people work for you for 20 years, but they can become owners too right alongside you.<\/p>\n
Is there an element to your hiring process when you\u2019re hiring an employee that they might have the chops to be an operator or is it just hard enough to find an employee, so the operator part of it not really too important?<\/p>\n
No, I mean, yeah, there\u2019s two questions I ask for every interview. And I wish God, if I had done one thing differently when I was younger, it would be to learn more about leadership, culture and hiring early. If we did a video right now and it was, how to get your first Airbnb to 10,000, we could go viral with that. If we did an interview that was like, how to hire to get your company to $100 million and we get 50 views. Because people don\u2019t realize the power of humans. That is so much more powerful if you can actually understand how to motivate and find and retain great humans, I think it is the cheat code to money.
So if you\u2019re listening and you\u2019re thinking of not listening for a second, I would not. But there\u2019s two questions I ask every time I hire. I ask, if you came to my company, what other exceptional people do who you could bring with you? And I will immediately tell you, are they a leader? Would anybody follow them? And do they think about talent? So I\u2019ll know immediately, especially for a management position, if they don\u2019t have somebody that they mention, then they\u2019re probably not a great leader or manager.
And then the second question I ask them every single time is, what\u2019s the one thing that you do with your team or with the people that report into you that you wish other bosses did? And typically they won\u2019t have an answer to that. It needs to be tactical, it needs to be really specific. And they might say something like, I do weekly one on ones. And that\u2019s wide enough where people could lie to you about that. So then I usually double tap and I go, \u201cThat\u2019s awesome. Can you show me an example? Pull it up right now on Zoom. I\u2019d love to see an example of what your one-on-one doc looks like that you run people through each week.\u201d And they\u2019ll be like, \u201cWell, we just do it verbally.\u201d And then you\u2019re like, \u201cNevermind. Okay. Next.\u201d Because I think the way you do anything is the way you do everything. And if you don\u2019t document and systematize early, you\u2019re never going to be able to run a company.<\/p>\n
Well, it means that they\u2019re not being challenged. If they don\u2019t need a system and you could just handle it, winging it, you\u2019re not pushing yourself as much as you could. The business isn\u2019t challenging you as much. When you get overwhelmed and you\u2019re like, \u201cI need a system. I need a process. I need a way to do this.\u201d Yeah. I mean it\u2019s similar to weightlifting. If you ask a person, \u201cWhat do you do when you hit a plateau? How do you get over it?\u201d And they\u2019re like, \u201cWell, I never really hit plateau. So I just work out until I feel tired and then I stop.\u201d Okay, that\u2019s not my workout partner. That\u2019s not the person I want running it.<\/p>\n
Right. That\u2019s a good point. My trainer the other day said something really good to me. She\u2019s like, well, I\u2019m trying to focus on fitness. I\u2019ve never really done it in my life. I\u2019ve always worked out, been relatively fit, but I\u2019ve never said, \u201cWhat if I just tried to be the most fit I possibly could be inside of 120 days?\u201d So I\u2019m going through that right now. And she said something so obvious but was such a great line, and it was, \u201cWell, you\u2019re definitely not going to lean out by accident.\u201d And I think that\u2019s the same thing with money, wealth, relationships. You\u2019re not going to get rich by accident. You\u2019re not going to get fit by accident. So if you don\u2019t have systems and processes and you\u2019re not, what is getting measured gets managed, then you\u2019re probably not going to hit your goals.<\/p>\n
When I was working as a police officer, I was buying out-of-state rental properties, and you don\u2019t have a lot of time to analyze a deal the way that your brain is comfortable with. You can\u2019t sit there for six hours and really just think about all these what ifs. You can\u2019t talk to your agent for an hour on the phone at a time whenever. I\u2019d have a three-minute period where I\u2019m waiting for someone to come relieve me where I have nothing to do.
So I had trained my real estate agents, listen, I\u2019m going to send you a text and I need you to play with a thumbs up or a thumbs down emoji. That\u2019s all that I want. And here\u2019s the questions I\u2019m going to ask. I\u2019m going to give you the address and I want you to look up this, this, and this. And then I\u2019m going to do the same with the property manager and they\u2019re going to tell me this, this, and this. And I needed both sides to be in agreement. And then I would move forward signing a contract, and then I would do the due diligence once I got to that point.
Well everyone\u2019s say, \u201cHow do you buy all these properties while you\u2019re doing your stuff as a cop?\u201d I\u2019m like, because I have a 12-second period of time where I can pull out my phone, text an address, copy it, send it to the property manager. An hour later when there\u2019s nothing happening, I can look. You\u2019re doing the same thing. You\u2019re just going on the onion or Instagram and you\u2019re just scrolling through stuff as opposed to being purposeful with that time. But I created that system because I didn\u2019t have the time.
That\u2019s where when you\u2019re pushing yourself is where you need structure. It\u2019s where you come up with these ideas. When you\u2019re comfortable and casual, it\u2019s not even a thing. I love what you\u2019re describing because what you\u2019re doing is you\u2019re stress testing these people, because you can\u2019t put them in the position and actually see if they perform. So you\u2019re just checking to see, \u201cWell, have you performed before?\u201d Because if you had, you would already understand these types of things. I\u2019m sure your personal trainer, when they say that you can\u2019t lean out by accident is because they\u2019ve done this with other people. They\u2019ve tried many times. The people have come to them and said, \u201cI want to be in shape.\u201d And they\u2019ve seen who it works on and who it doesn\u2019t and what their mindset is.<\/p>\n
Yes. Did you name your framework?<\/p>\n
That\u2019s a good point. I don\u2019t know if I\u2026 That\u2019s why I\u2019m not good at marketing.<\/p>\n
You would\u2019ve failed that interview.<\/p>\n
He would\u2019ve.<\/p>\n
Sorry, dude, you\u2019re not working for Codie.<\/p>\n
It\u2019s spelled out in long distance investing. But no, I didn\u2019t come up with a name for it.<\/p>\n
I think I found recently that naming the processes that you do is really helpful, of course for marketing, but also just because it\u2019s a trigger for your team. So basically almost anything we do at Contrarian Thinking, I try to stop and pause when we have something that we want to do that has more than three steps, that we do more than three times and that gets documented. And I learned that from one of my mentors.
But then the second stage of that was trying to name as many of those things as possible. So we stole from the military from my husband, something called the CCE method, which is basically a way to prioritize tasks. So you guys know, just think about it in your personal budget. Let\u2019s say that you\u2019re a husband and a wife and your husband wants to buy something or your wife wants to buy something, and there\u2019s always a strain.
You can always buy more stuff. You always need more things, but maybe there\u2019s not enough money there to do it. Well, in business, it\u2019s the same thing. Your team always wants more from you, I need another hire. We need a bigger office building, whatever it is. So we trained them to say, is it considered critical, AKA. If we are driving a car and the car runs out of gas, we\u2019re almost out of gas, it\u2019s critical. We better fix that. And if we don\u2019t, we can\u2019t continue on the road trip versus all the way at the bottom, which is enabling is basically if we are driving a car and we want to get to a destination, but we would like to get there faster, sure, we could put a turbocharger on it. But we\u2019re still going to get there if we don\u2019t have the turbocharger.
So I try to get my employees to use this framework to say, are we talking about critical? Are we talking about enabling and what\u2019s the difference between the two? And I think it\u2019s really helpful in relationships too because it\u2019s like, is this a critical to our relationship, to your happiness, to our kid? So the more you can frame out, I think the better.<\/p>\n
That\u2019s really good. We have a couple of things we call pivotal tasks within the David Greene team and the One Brokerage. As you know, when you\u2019re running a business, very few problems are something that you make one decision and it\u2019s over. It\u2019s like this person needs information, but before they can get it, the bookkeeper has to weigh in and the CPAs have to agree, and they have to present that to the COO, and then that person has to go delegate it to these people. So there\u2019s like nine steps before you can get the thing fixed. And that\u2019s where they get lost. It\u2019s somewhere in those nine steps that someone doesn\u2019t push it through.
So when we label it a pivotal task, that means the next person can\u2019t do their job until you do yours. So this becomes a priority. You need to get them something, and it\u2019s probably not going to come back to you for three days when it makes its way up the chain. You can work on the stuff you\u2019re doing. But if you wait till the end of the day before you send that off, then that person gets it. And then if they wait till the end of the day, that\u2019s how you take like 25 days to get something that could have been done in four hours if people would\u2019ve.
So that framework makes a lot of sense because your employees don\u2019t intuitively understand why that\u2019s important. And that\u2019s a mistake I make a lot. I just like, \u201cWhy would you not think that way?\u201d But they need to tell them how to think that way.<\/p>\n
Yeah. So my kids, when they\u2019re starting to get worked up or they\u2019re crying, I\u2019m like, is this a little deal or is this a big deal?<\/p>\n
That\u2019s cute.<\/p>\n
And most of the time they\u2019re like, it\u2019s a little deal. So that\u2019s the system that I\u2019ve baked out with my kids. Just a little tip for everyone at home. Codie, the other provocative question you asked in the Money Podcast interview was, how creative can you be in aligning a business that you might already have an unfair advantage with? So with that, what are some of the skills that most real estate investors already have that might lend them an advantage?<\/p>\n
Yeah. Well, one, you guys are typically really good at sales. You\u2019re hustlers. Most real estate people I\u2019ve met, they\u2019ll make a ton of phone calls. They\u2019ll do a ton of door knocking. At least the good ones I should say. So I think anything that is involving marketing or sales is probably pretty interesting for let\u2019s say real estate investors. Because I would assume most real estate investors come originally from being real estate agents. Is that true?<\/p>\n
No. I think that\u2019s probably rare.<\/p>\n
Not Necessarily.<\/p>\n
Yeah.<\/p>\n
Interesting. So where do most real estate investors come from? What do you do before you were a real estate investor? Because you had to have money to start?<\/p>\n
Yeah. Probably some form just of like a 9:00 to 5:00, I\u2019d say.<\/p>\n
Yeah. And a lot of them I think bought a house. The house went up and they\u2019re like, \u201cMy God, I made all this money on my house. How do I do it again?\u201d Some of their money came from the equity in that first property.<\/p>\n
Interesting. Okay.<\/p>\n
Yeah. Or they\u2019ll own the house and then they just want to go into their next house-<\/p>\n
And they make it a rental property.<\/p>\n
\u2026 and they just make it a rental property. Yeah.<\/p>\n
So what are the skill sets that you typically think real estate agents, or I\u2019m sorry, real estate investors have?<\/p>\n
They\u2019re highly analytical.<\/p>\n
Interesting.<\/p>\n
They have a vision to see how something could be used. And they are willing to do a lot of work, like making a lot of calls, going at lists. They typically look for inefficiencies in a market, and they try to find off market opportunities.<\/p>\n
I would also say they have a vision for upside too.<\/p>\n
Do they have to be pretty detail oriented because you don\u2019t have a lot of margin on each deal?<\/p>\n
You have to be detail oriented just to enjoy the amount of analysis you have to do to decide if this is going to work or not. They\u2019re like a bookkeeper more so than a salesperson.<\/p>\n
Interesting. Well, in that case\u2026 I was actually going through this with another friend of mine the other day because she\u2019s trying to figure out what she wants to do next. And you guys know the SWOT framework, which is strengths, weaknesses, opportunities, threats. Well, we played around with something that was strengths, weaknesses, wants, so things that you want to do, and then opportunities. So I guess that\u2019s S-W-W-O, or we could say SOWW, anyway.<\/p>\n
SWWOT.<\/p>\n
No. No T.<\/p>\n
No T. SWWO. Okay. Sorry.<\/p>\n
SOWW. Okay. Anyway, S-O-W-W. And the idea is, if you guys right now are trying to figure out what your unfair advantage is, I think it\u2019s so individualized that I would be scared to say for real estate investors in general, you should do this since I\u2019m not one. But what I would do is I would write down your strengths. I would write down your weaknesses, and then I would write down your wants, and then I would write down the opportunities that you see around you.
And basically what you\u2019re going to try to do is you\u2019re going to try to match. Just because you\u2019re good at something, doesn\u2019t mean that you should do that thing. Shoulds don\u2019t have to mean wants. So what I think I see a lot of times with people that I know as investors is if you\u2019re going to put money into a deal, it\u2019s hard to make the money back right away.
You\u2019re into the deal for a while. It\u2019s a one to three, to five to 10 year commitment. So I\u2019m really careful on the deals that I get into. So I would make sure whatever your strengths are, that those marry really well with your wants. Because the difference between a rental property and a business is the business is like a baby. You can\u2019t leave it alone or it\u2019ll die.
So typically the first time that you get into a deal, you need to assume that that baby\u2019s going to be something you have to watch over. But answering your questions, I mean, it sounds like they\u2019d be pretty good at analyzing businesses across the board. It sounds like they\u2019re probably pretty good at businesses that are mostly numerical, so probably things that are real estate adjacent, laundromats, car washes, property management companies. If they can handle the high number of people you\u2019d have to manage. I would assume also real estate heavy businesses like hotels, those types of things are so adjacent that they\u2019re very similar.<\/p>\n
Yeah. That makes sense. What are some of the pitfalls that you should look out for when you\u2019re thinking about businesses that would leverage some of those skills?<\/p>\n
Well, a lot. One is, I only buy profitable businesses, so I don\u2019t buy businesses that make money. That\u2019s me personally. You could do what\u2019s called a turnaround, but I like to make sure that my business makes money on day one. Two, for a lot of these businesses, you don\u2019t want complex. Complexity kills in deals. So you really are looking for what\u2019s a business that I understand. I really think there\u2019s only three questions to buying a business if you really simplify it down.
And the first question is, how sure am I that I am getting what I think I\u2019m getting? So is it actually making the money that it says it\u2019s going to? Do I actually really believe the financials? How good is my due diligence? The second question is, what does the business actually do? And do I fully understand that. If it\u2019s a healthcare business, that might be harder for me to understand. Anything proprietary, maybe not. And the third is, do I actually want to do the things that the business necessitates me to do? So it\u2019s like, how real is this business? What does this business actually do? Do I fully understand it? Do I want to do what it takes to run this business?
And if you analyze those three things, then there\u2019s no such deal as a bad deal. That doesn\u2019t exist. It\u2019s just, is it a bad deal for you? And did you get the deal at a bad price? That would be my answer.<\/p>\n
That\u2019s really good. Well, before we wrap, this has been just an entire podcast of golden nuggets. Is there one weird thing that you know now from one of the businesses that you\u2019ve picked up?<\/p>\n
Did you buy a laundromat and realize that there\u2019s like a dumb bunch of different ways to do laundry that you never would\u2019ve known if you wouldn\u2019t have bought it?<\/p>\n
Yeah. Well, I did realize the amount of weird things you find in laundry when you own one of those. I\u2019m sure you guys are the same with Airbnbs. You know what the biggest thing I learned is just be damn careful who you partner with. I really messed up with humans, not business analysis. And I don\u2019t think people talk about that.<\/p>\n
That\u2019s been the theme of almost every podcast recording today.<\/p>\n
Really?<\/p>\n
People are your problem.<\/p>\n
Interesting. Yeah, it\u2019s true. I mean, you\u2019re going to have two of our friends come in here later, and he got defrauded by a guy for 100K and almost put him out of business. I got defrauded by a guy who I had held his baby. He had come to our house like-<\/p>\n
Wow.<\/p>\n
We were best buds. He was super close with Chris, for like 200K.<\/p>\n
I think I\u2019m going to get you that back.<\/p>\n
One of these days.<\/p>\n
One of these days.<\/p>\n
Yeah. Do like your kids still.<\/p>\n
No. I mean, it\u2019s a really good point. We were up late talking last night about some of my issues. A 100% of them came from people. People I trusted that I shouldn\u2019t have trusted. People that gave me bad advice. It is very tricky. We tend to look at business like its numbers on a page and fundamentals, but they\u2019re such an important people component.
I was wondering if you\u2019ve ever bought into a business with somebody, they got some money up front and then they lost motivation to actually run it because now they realize, I got to split the profit with someone else. It\u2019s not worth it. And now that business you bought into the operator that could do the job isn\u2019t motivated. Is that a problem that you had before?<\/p>\n
No. I\u2019ve never had that problem, because the way you structure the deal up front is really important.<\/p>\n
You don\u2019t give them a big payoff as soon as they get in basically?<\/p>\n
Never.<\/p>\n
Yeah. You mentioned investing, right?<\/p>\n
Yeah. Every single deal I do, everybody is vested in it, and that\u2019s usually a three to five year vest, and there\u2019s usually a cliff like one year. So if you learn one thing and you\u2019re going to go do a deal and you\u2019re young and you\u2019re listening to this and you\u2019re doing it with your first partner, just make sure you guys can both put in a certain amount of capital and get a percent of equity for the capital, the money, the dollars you put in. But sweat equity, you only get over time. And I think that time period should typically be three years, and you should get it portioned out.<\/p>\n
All right. Well, thank you, Codie. This has been fantastic. If people want to find out more about you, where can they go?<\/p>\n
Codie Sanchez on all the socials basically. And contrarianthinking.co. Our newsletter I think is, I\u2019m slightly biased, but I think is one of the best out there on buying, starting and building businesses.<\/p>\n
It\u2019s good. I get the daily emails and I read them. I may not read books, but I read daily emails.<\/p>\n
Am I on your shelf though?<\/p>\n
Not yet.<\/p>\n
Okay.<\/p>\n
When you write your first book though, can I write the endorsement or the forward?<\/p>\n
Yes. Of course. Yeah.<\/p>\n
You heard it here first.<\/p>\n
He has a bad track record of writing forwards and then missing deadlines.<\/p>\n
I did, yeah. No. I won\u2019t. I\u2019m going to fix myself.<\/p>\n
Codie\u2019s worth it, but Tony wasn\u2019t?<\/p>\n
The best predictor of future behaviors past behavior.<\/p>\n
Wow. How you [inaudible 00:51:36] is how you do everything.<\/p>\n
I guess we both have failed to be getting hired by Codie.<\/p>\n
Isn\u2019t that the worst line ever? It\u2019s so true. Painful.<\/p>\n
All right. Well thank you Codie. We appreciate you being here. We\u2019re going to let you go. This is David Greene for Rob, only judges a book by its cover Abasolo, signing off.<\/p>\n